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June 14, 2026
The Dispatch

Definition

Bonus Issue

A bonus issue is the free allotment of additional shares to existing shareholders, funded out of reserves, in proportion to their holdings.

In a bonus issue (say 1:1), a company capitalises its reserves — such as the securities premium or free reserves — to issue new shares at no cost to shareholders. The total value of one's holding stays the same because the price adjusts down; only the share count rises.

Bonus issues improve liquidity and signal management confidence in future earnings. They differ from dividends (which pay cash) and stock splits (which reduce face value rather than capitalise reserves). SEBI sets the procedural timeline for bonus issues.

Related terms

  • Stock SplitA stock split divides each existing share into multiple shares by lowering the face value, increasing the share count and reducing the per-share price without changing total value.
  • Securities PremiumSecurities premium is the amount a company receives above the face value when it issues shares, recorded in a dedicated reserve.
  • Dividend YieldDividend yield is the annual dividend per share divided by the share price, expressed as a percentage.

Plain-English explainer from The Dispatch Investors Encyclopedia. General information, not financial advice.